Spot values at a glance:
Asian equities were largely mixed earlier today as investors awaited more clues on global demand and US interest-rate policy, ahead of Friday’s release of key US inflation. The US dollar weakened while crude oil declined. Gold rebounded back to the $1,260/Oz handle.
- North Korea vowed to respond with an “action of justice” after being hit with sanctions by the United Nations Security Council on Saturday following 2 successful missile tests in July. The US would “pay dearly” for its role in spearheading these penalties, according to North Korea’s state news agency, which added that the regime’s nuclear and intercontinental ballistic missile programs would not be up for negotiation.
- Discussions on how to defuse the crisis dominated the meeting of Asean foreign ministers in Manila, with the Philippine foreign affairs secretary conveying the group’s “frustration” to his opposite number from North Korea. Japan has urged further pressure be put on the isolated nation, while South Korean President Moon Jae-in told US President Donald Trump that the situation must be resolved peacefully.
- Federal Reserve Bank of St. Louis President James Bullard said interest-rate policy should be left on hold after “unexpectedly low” price data suggested that inflation may not be on track to rise to the US central bank’s 2% target. Bullard added that “recent inflation data have surprised to the downside and call into question the idea that US inflation is reliably returning toward target” and that “the current level of policy rate is likely to remain appropriate over the near term”.
- The Fed’s Minneapolis President Neel Kashkari chimed in as well and said “inflation has been coming up short, a little low” relative to the 2% target. Kashkari, a voting member of the FOMC this year, backed the decision to hold rates steady last month after dissenting against rate hikes in March and June.
- Key inflation data for July is due for release this Friday and is expected to show that core CPI rose 0.2% month-on-month.
- The Dow Jones Industrial Average (+0.12%) extended its winning streak to double digits and booked its ninth consecutive record close to start the week. The S&P 500 Index (+0.16%) also notched another all-time high, with tech stocks fuelling gains as energy and financials lagged. The Nasdaq Composite rallied 0.51%.
- The US dollar mostly slipped earlier today, with the Bloomberg Dollar Spot Index and Dollar Index both falling 0.2% earlier today.
- US Treasuries yields reversed earlier gains following dovish comments from Fed officials Bullard and Kashkari; the benchmark 10yr Treasury yield fell 1bp to 2.25%.
- The euro continued to strengthen even though a report Wednesday showed German industrial production unexpectedly slipped in June. Output, adjusted for seasonal swings and inflation, fell 1.1% in June, marking the first drop in 6 months. Even so, the Bloomberg Euro Index managed to eke out a small gain of 0.13%, leaving the gauge at some of its strongest levels in years after rallying 8.5% in 2017.
- Even the biggest bulls are starting to worry that the euro may be too strong for the ECB after it rallied to US$1.19 late last week from US$1.0341 at the beginning of the year. The gathering of central bankers in Jackson Hole, Wyoming, later this month may see ECB President Mario Draghi leaning against euro strength, leading to the long-awaited correction, according to the currency strategists at Morgan Stanley
- Britain’s job market is booming, but concern is increasing about where companies are going to keep finding workers. The number of permanent jobs grew at the fastest rate in more than 2 years in July, while the availability of workers fell sharply, according to a report by the Recruitment and Employment Confederation published Tuesday. It said that helped boost a measure of starting salaries to the highest in 20 months.
- China’s foreign-exchange reserves climbed for a sixth straight month in July, the longest streak since June 2014, as the yuan rallied and tighter capital controls curbed outflows. Reserves climbed $23.9 billion to $3.081 trillion, the People’s Bank of China said Monday, above the $3.075 trillion estimate in a Bloomberg survey of economists.
- Solid economic data and the presence of curbs on moving money abroad have helped restore confidence in the currency and ease outflow pressure, according to Bloomberg News. The foundation for steadier cross-border capital flows has become more solid, the State Administration of Foreign Exchange said last month. A weaker dollar has also lifted the value of assets in yen and euros.
- Higher reserves in China can benefit US investors, in that China often uses its reserves to invest in US bonds, helping to keep borrowing costs low. As such, China’s holdings of Treasuries have jumped $44.2 billion this year through May to $1.1022 trillion, according to the US Treasury Department.
- China’s trade surplus widened for a fifth month in July as export growth remained solid while imports moderated. Exports rose 7.2% from a year ago, in dollar terms, slowing from an 11.3% rise in June and missing the median estimate of 11.0%. Imports gained 11.0%, in dollar terms, compared to a 17.2% advance in June and slower than the predicted 18.0% by analysts. Trade surplus widened to $46.7 billion, from $42.8 billion.
- Iron ore imports rose 7.5% year-to-date, while oil products fell 1.0% and natural gas imports jumped 20.7% over the same period.
- According to a Bloomberg analytical piece, demand for Chinese products has remained resilient as growth in major trading partners continued to recover. At home, stronger-than-expected output has also supported robust import demand. Yet the world’s largest exporter is confronting more uncertainty as US President Donald Trump continues sporadic tough talk on China. The White House may be considering an investigation into alleged intellectual property violations, which could risk igniting broader trade conflict.
- The NAB business confidence index in July rose to 12, from 8 in June. The business conditions index over the same period rose as well, from 14 to 15.
- Spot gold erased Monday’s decline, rising 0.4% to $1,261.71/Oz earlier, following dovish comments by Fed officials and ahead of keenly watched US inflation data due Friday.
- The precious metal has failed to close above the key $1,270/Oz handle for 6 consecutive sessions prior to Monday, and further correction to the downside is expected. The key support remains around the $1,200/Oz region although interim support can be found around $1,245/Oz.
- Silver for immediate delivery mirrored gold’s rebound from Monday’s lows, rising 1.0% to $16.3147/Oz.
- The momentum for silver firmly remains to the downside, with the downward trend channel since March indicating further bearish moves.
- Crude oil futures expiring in September slipped 0.4% in New York, and fell another 0.4% earlier today to $49.18/bbl as officials from Russia and Kuwait conducted meetings in Abu Dhabi with producers to examine why some are shirking their commitment to reduce output. Talks are being held separately with representatives from Iraq, UAE and Kazakhstan through Tuesday.
- US crude stockpiles probably fell by 2.1 million barrels last week, a Bloomberg survey showed before government data due for release later today.
- Oil futures in New York was were unable to hold its first advance above $50/bbl since May last week as signs of rising global supply eroded optimism that output curbs by OPEC and its partners are rebalancing the market. Compliance by OPEC members slid to 78% in June, according to the IEA.
- Spot 1.3612
- USDSGD looks set to snap a 5-session winning streak, with the pair presently 0.2% lower at 1.3606 following USD weakness today.
- The support below lies at 1.3500, where the base of a double-top formation on the pair’s multiyear technical chart lies. However, a recovery back up to the resistance level of 1.3700 remains more likely.
- Spot 0.7919
- AUDUSD rebounded from the 0.7900 handle, rising earlier by as much as 0.7939 after the NAB business confidence index rose in July and iron ore prices extended gains.
- The next resistance target resides at the 2-year high of 0.8164, while to the downside, 0.7875 is expected to provide support.
- Spot 1.2669
- USDCAD slid 0.3% to 1.2654, pulling back from the 1.2700 handle breached overnight.
- USDCAD rose to a 3-week high last night, following USD strength and crude oil weakness.
- Having broken above 1.2600, the pair could extend its rebound higher towards the 1.2800 key resistance level.
- Spot 6.7106
- The PBOC strengthened its reference rate by 0.07% to 6.7184 per US dollar earlier today.
- USDCNH declined 0.3% to 6.7081, its lowest level since Oct 2016. The key psychological support of 6.7000 should provide a breather in the decline of the currency pair, down more than 2% since its high in June.
- Spot 110.65
- USDJPY was 0.3% lower on the day, reaching 110.57 and erasing its gain from Monday. The pair has been largely constrained within the 110 and 111 handles so far in the month of August.
- The 110 support continues to hold. Further downside could be potentially capped by the base of a rising wedge pattern, established since April, at around 109.50.
- Spot 1.3045
- GBPUSD was little changed on the day as the pair continues to be supported above the psychological 1.3000, following its 1.5% slump last Friday.
- Brexit jitters continue to haunt sterling bulls, with markets doubting UK PM Theresa May’s especially after the election debacle. Continued USD weakness should, however, maintain support at 1.3000 for the currency pair.
- Over a longer-term, the key support remains at 1.2800 while the important resistance target is at 1.3450.